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NYT: Basic Economics Explains Political Exchange but Not Private Exchange

In “Politicians for Sale” (Oct. 8) you support legislated limits on the amounts of money that citizens may contribute to political candidates. Your argument sensibly assumes that profitable exchanges between buyers (interest groups) and sellers (politicians peddling political favors) are less likely to occur if government (by limiting private campaign contributions) successfully forces the profits from these exchanges to be lower than they would otherwise be. In short, if government makes the exchange of political favors less profitable, fewer such favors will be bought and sold.

Without my opining on the legal or ethical merits of campaign-contribution limitations, I beg you to generalize the economic insight that underlies your call for such limitations. Specifically, apply that insight to minimum-wage legislation and ask: If government shrinks the market for political favors by reducing the profitability of exchanging such favors, doesn’t government also shrink the market for low-skilled workers by reducing – with minimum-wage legislation – the profitability of hiring such workers?

Why, in other words, do you assume that textbook economics correctly predicts how politicians and lobbyists respond to changed incentives but, when you express support for a higher minimum wage, you assume that textbook economics incorrectly predicts how employers of low-skilled workers respond to changed incentives?

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market
Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030